Page 8 - Working Paper (Fiscal Decentralization and Sub-national Taxes: Specific Case of Indonesia)
P. 8

DDTC Working Paper 1015

                                                 Figure 3 - Tax Base Across G20 Countries
                               Italy                                                               28.7
                                UK                                                                 28.5
                          South Africa                                                        26.5
                             Canada                                                           26.4
                            Australia                                                        25.9
                             France                                                         25.6
                              Brazil                                                        25.4
                            Argentina                                                      24.7
                           OECD Avg.                                                      24.6
                              Russia                                                  22.9
                            Germany                                                  22.4
                              Turkey                                              21.1
                              Korea                                           19.4
                              China                                          18.9
                                US                                          18.4
                              Japan                                     16.5
                              India                                   15.5
                             Mexico                                14.5
                            Indonesia                      10.89
                                   0                    10                     20                    30
                                                       Total Tax Revenue as Percent of GDP
                   that there must be significant local autonomy given   and enforcement .
                   not only on the expenditure side but also on the
                                                                       Moving  to  the  case  of  Indonesia,  sub-national
                   revenue side. If local governments do not have the
                                                                    taxation is regulated by Law 28 of 2009 on regional
                   power to set tax rates, then their officials cannot
                                                                    taxes and user charges. There are four provincial
                   be held fully accountable by voters for the quality
                                                                    taxes namely 1) motor vehicle tax, 2) motor vehicle
                   of public services delivered. In addition, it is also
                                                                    transfer  tax,  3) fuel excise  tax,  and 4) ground
                   necessary for local councils and chief officers to be
                                                                    water extraction and use tax. Moreover, there are
                   elected. Otherwise, they will not be accountable to
                                                                    seven kinds of taxes for local government, 1) hotel
                   the local voting population, and the efficiency gains
                   of decentralization will be lost 20              tax,  2) restaurant  tax,  3) street lighting tax,  4)
                                                                    advertisement tax, 5) entertainment tax, 6) mining
                                                                    tax for class c minerals and 7) parking tax.
                   4. Performance of Sub-national Taxes                In general,  local  taxing  power  in Indonesia
                                                                    considered weak  due to the absence of major
                                                                    taxes  at the local  level, even through the  piggy-
                     in general, local Taxing power in              backed system. The current fiscal decentralization
                    indonesia considered weak due To                system, through Law 33 of 2004, still emphasizes
                     The absence of major Taxes aT The              on the tax  revenue sharing of property tax,  land
                                                local level.        transfer tax,  and  personal  income tax . While
                                                                    the local governments receive certain part of the
                                                                    respective tax revenue, they do not have authority
                      From  Figure  3,  it  depicts  that  a  total  tax-GDP
                                                                    in setting tax rate and base. As a result, the local
                   ratio of Indonesia is around 10.89 percent in 2010.
                                                                    governments have little room to provide incentive
                   Indonesia is one of the lowest tax bases among G20
                                                                    for  local  investors.  Based  on  Table  5,  central
                   countries well below South Korea (19.4 percent),
                                                                    government is still collecting and managing major
                   China (18.9 percent), Japan (16.5 percent) and even
                                                                    source of revenues from taxes and mining in order
                   India (15.5 percent) and Mexico (14.5 percent) .
                                                                    to support horizontal equalization agenda. Under
                   Frankly to say that  Indonesia performance is at
                                                                    the current fiscal decentralization law (Law No 33
                   the bottom whereas Italy performs  much better
                                                                    of 2004), which currently is under revision, central
                   than  all  developed  G20  countries  with  figures  as
                                                                    govenment  keeps 80 percent  of revenue from
                   high  as 28.7  percent. Hence,  it can be concluded
                                                                    Personal Income Tax. Meanwhile, for property tax
                   that there is an urgent need to expand the tax base
                                                                    (P2  –  urban  and  rural),  central  government  has
                   in Indonesia as well as reform tax administration
                                                                    reliquished its authority to collect to subnational
                   through   enhancement   of   identification   of
                                                                    government starting in 2014.
                   properties,  valuation,  recordkeeping, collection
                   20.  Bahl,  Roy,  W.,  1999,  “Implementation Rules for  Fiscal   22. City of Barranquilla in Republic of Colombia is able to double tax
                   Decentralization”, Published of the World Bank, New York.  collection between the course of 6-7 years by improving its property tax
                   21. Current Tax-GDP ratio in Indonesia is about 12.5% however the   administration.
                   number is still below its G20 counterparts.      23. Op.cit, Suhendra and Amir, 2006
   3   4   5   6   7   8   9   10   11   12